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Valar Qringaomis

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Friday, October 31, 2014

Does Competition Eliminate Discrimination? Evidence from the Commercial Sex Market in Singapore (2/2)

(Continued)

"Empirical findings suggest that the sex workers’ discriminative behavior is largely profit-driven and also reflects a high degree of taste preference. The discussion on the nature of price discrimination in my case study is twofold. First, I investigate the sex workers' treatment of the Caucasians and the Bangladeshis, in which I argue that there is a strong presence of statistical discrimination. Second, I argue that the sex workers practice taste-based discrimination against Indians...

Sex workers are 17 percent more likely to approach Caucasian clients compared to Chinese clients, and impose an 18 percent premium on the initial price for Caucasians. The bargaining process with Caucasians is slightly less likely to fail than the bargaining process with the Chinese. However, the difference in failure rates is not statistically significant...

The small difference in the bargaining outcomes between the two ethnicities could be due to a violation of these assumptions. Firstly, Chinese men are more familiar with the local market. Knowing this, sex workers are more likely to suggest an initial price that is closer to the men’s true willingness to pay. This results in higher bargaining success rates with the Chinese clients even though they are only willing to pay lower prices. Secondly, Chinese clients are more accustomed to and are more capable at bargaining, or at least this is what the sex workers have reported. The sex workers cherry-pick Caucasian men because they are more likely to seal the deal with Caucasian clients at a higher rent rate with an equal amount of bargaining effort. Hence, heterogeneity in the bargaining behavior of the clients could potentially contract the gap in the bargaining outcome between the two groups. Therefore, I conclude that sex workers exercise statistical discrimination against Caucasian clients.

Recall that the more attractive sex workers are popular among both Chinese and Caucasian clients, especially for the latter. Over 90 percent of Caucasians are attached to beautiful sex workers. Hence, the observed results are mainly driven by the behavior of these more attractive sex workers. Attractiveness grants sex workers more market power. The more attractive sex workers are able to demand a 22 percent premium on the initial price proposed to Caucasians, which is 4 percent higher than what the less attractive workers ask for. Assuming both types of sex workers are providing the same service, this 4 percent margin can be considered as a form of beauty premium.

The more attractive sex workers rate Chinese high at 4.13, which is half a point more than the rating for Caucasians, even though they expect a higher transaction profit from Caucasians. I believe that this higher rating is based on their intrinsic preference for Chinese clients, because they believe Chinese men are more likely to be repeat customers.

Recognizing that the matching between Caucasians and less attractive sex worker is low, I briefly comment on these sex workers’ behavior here. Although the less attractive sex workers cannot compete with more attractive sex workers in appearance, they make up for it by being more proactive in approaching potential clients. They are 28 percent more likely to approach the Caucasians than the Chinese.

It is worth mentioning that the enumerators hired for the survey are Asians, and presumably, they rank the sex workers’ beauty by Asian standards. There is a level of subjectivity involved, as some sex workers who appear to be less attractive to the Asian enumerator (or clients) may be considered attractive to Caucasians. If the less attractive sex workers are aware of this subjectivity, then it is not surprising to find that they approach Caucasians more proactively. In short, this is also a full and precise demonstration that the sex workers’ discriminative actions are deliberate. They discriminate statistically based on wealth indicators (the client’s ethnicity) and their asset endowment (beauty)...

Both attractive and less attractive sex workers propose lower initial prices to Bangladeshi clients with a discount of 24 percent and 20 percent, respectively. This is somewhat expected because the majority of Bangladeshis in Singapore are hard laborers and earn only 20 Singapore Dollars (17 USD) a day. Thus, the fact that Bangladeshi clients have the lowest willingness to pay is not private information in this market, and is likely to have contributed to the lower initial prices. Moreover, both the attractive and less attractive sex workers experience a higher likelihood of bargaining failure when dealing with Bangladeshis, which is 30 percent and 19 percent, respectively...

The fact that over 90 percent of the transactions with Bangladeshis are conducted by the less attractive sex workers sheds some light on this seemingly puzzling finding. Active engagement with Bangladeshi clients implies less attractive sex workers face gloomy market prospects and are forced to take the less profitable and less favored share of the pie to survive. In order to secure less desirable but much-needed clients, they approach Bangladeshis as often as they approach the Chinese even though Bangladeshis are not able to match the prices that the Chinese are able to pay. Thus, it is clear that less attractive sex workers positively discriminate against Bangladeshis.

Lastly, I assess the possibility of taste discrimination. As mentioned, the sex workers find clients with dark skin tones distasteful. Both Bangladeshi and Indian men are usually regarded to have darker skin. However, intriguingly, every pimp and sex worker interviewed insisted that they can distinguish between Indian and Bangladeshi men, and claim that Bangladeshis are fairer than Indians. We are not able to confirm whether their judgment is accurate. But, what we can conclude is that they have a way to identify Bangladeshis and they do not have any distaste towards the characteristics that the identified Bangladeshi men possess...

We do recognize that the sex workers have a sense of the expected service duration for each ethnic group, and may set prices that incorporate this expectation. In my sample, the average service duration with the Caucasian men is about twice as long as that with the Chinese men and Indian men, and three times longer than that with the Bangladeshis and Malays. This suggests that service duration could be a key determinant of the initial price differential observed between the Chinese and Caucasians, as well as between the Chinese and Bangladeshi.

Different sexual acts are sold as a combo in most of the transactions. On average, 2 types of sexual acts are sold in each transaction. Only 18 percent of transactions involve solely vaginal penetration and only 1 percent involves solely oral sex.* Sex workers may require a higher compensation for the client group they deem to be more demanding during the transaction.

* - Among all transactions, 77 percent involves vaginal penetration, 35 percent involves anal sex, 50 percent involves oral sex and 1 percent involves only a handjob...

Sex workers’ price discrimination against Caucasians (relative to Chinese) is primarily due to their demand for longer service duration. Such price discrimination is neither associated with intensity of sexual acts performed during the transactions nor where and when the transactions occurred...

After sexual acts are taken into account, discrimination is more pronounced with a 20 percent (see column(4) in Table 10) higher price for Caucasians which indicates that Chinese clients could be more demanding compared to Caucasians. When all the service characteristics are controlled in column (5), the price disparity between the Caucasians and Chinese disappears. Nevertheless, my argument about the sex workers’ statistical discrimination against the Caucasians remains intact, because the sex workers use the potential client’s ethnicity as an indicator of the expected service time. They know that Caucasians are more likely to buy longer services. Thus, they are willing to approach Caucasians more frequently. Because competition among the sex workers is severe and waiting is costly, it is not surprising to observe that sex workers prefer selling their services to Caucasians. They are able to make a higher profit from transactions with Caucasians than with the Chinese through a slightly inflated price and longer service duration.

For Bangladeshis, the argument of statistical price discrimination stands firm, except the price discount for Bangladeshi drops from 18 percent to 13 percent (see column(5) in Table 10). This consistently reflects the shorter service duration and lower labor intensity for transactions with Bangladeshi...

The sex workers’ behavioral responses towards Indian men forms an interesting case of taste-based discrimination. Recall the reasoning behind sex workers' distaste towards Indian men: body odor, dark skin tone, less wealthy, more demanding/rough and bargain a lot. While the accusation regarding the body odor and dark skin tone can be clearly viewed as sex workers’ pure taste preferences, the other reasons could arguably be interpreted as either labor cost boosters or taste preference determinants...

Facing high demand, beautiful sex workers are less constrained to achieve max profit and have the luxury of avoiding disliked clients. They minimize contacts with Indians, which is shown by their significantly lower tendency to approach Indian men (24 percent less likely as compared to their rate of approach to Chinese men). They demand a high premium of 16 percent on the initial price from potential Indian clients to compensate for the expected utility loss from the transaction (if they decided to sell), as well as to discourage the Indians from further negotiation (if they do not intend to sell)...

The situation holds even with the less attractive sex workers, except that they do not impose inflated initial prices on Indians. Similar to the argument I presented in the case of Bangladeshi men, the equal pricing is due to the fact that the less attractive sex workers are less desired and possess less market power...

Median bargaining time with Indians is as long as that with Chinese, and it is longer than that with Bangladeshis. In comparison with Bangladeshis, the price inflation placed on Indians dropped from 20 percent to 17 percent after taking differences in bargaining time. This implies 3 percent of price disparity could be explained by the longer expected bargaining time with Indians. It is weak evidence supporting the fact that sex workers demand higher compensation from Indians for the prolonged bargaining...

That Indians are more demanding or rougher is a clear indication of high expected transaction cost with Indians...

Data confirms 14* percent of all transactions involving anal sex are associated with Indians, whereas only 8 percent are associated with Bangladeshis. Among all transactions Indians clients have, 49 percent of them involve anal sex, which is close to the 53 percent rate of anal sex with Chinese clients, but is much higher than the 13 percent rate with Bangladeshis.

* - 56 percent of all transactions with Chinese involve anal sex, the largest proportion among all ethnic client groups...

Sex workers are 15 percent (see column (2) in Table 14) less likely to approach Indian men on weekdays (Monday-Thursday) and this likelihood is further reduced by an additional 23 percent (p-value=0.06) over the weekend. It is very clear that sex workers are inclined to avoid Indians, but they implement this preference strategically. They aim to strike a balance between minimizing work disutility and maximizing monetary returns. Therefore, they approach Indian men less often over the weekend when they have more demand...

While the preference against dark skin tone is a clear taste preference, one may argue that serving a smelly client is like working at a dirty job, therefore it increases the cost of service and is not entirely a taste preference. This is a debatable assertion, just like some researchers believe people should not even call statistical discrimination as discrimination. What I want to point out is that if even there is some marginal effect of such cost, it is not expected to be large enough to absorb such large price dispersion...

There is no price discrimination found between the Chinese and Malays. Bargaining with Malays is 22 percent more likely to fail. They are less likely to be approached, but this difference is not statistically significant. It seems that the Malay clients are less favored because the sex workers are not able to extract as much profit from them as from the Chinese. However, there is no convincing evidence to support either statistical discrimination or taste-based discrimination...

Survey feedback shows that the client’s outfit is the third most important indicator that sex workers use to decide whether or not to approach the client and in setting the initial price. I did not find that the client’s outfit has any influence in motivating street walkers to make the first move, but I do find that better dressed men received a 9 percent (see column (4) in Table 8) higher initial price compared to the less well-dressed men. It may be because the outfit of the client is a noisier and hence less reliable signal compared to ethnicity. It makes perfect sense for the situation in the street market where most of clients are less well-off compared to the men in the high-end market and who mostly dress casually*.

* - 76 percent of the clients have a dress rating of below 4; 68 percent of the Bangladeshi clients have a rating of 1...

The sex workers’ taste-preference for the client’s appearance matters only to the extent that attractive-looking men spur more proactive action from street walkers. An above average looking man is 19 percent more likely to be approached by the sex workers. The street walkers’ preference for looks maintains a monotonic impact across all client ethnicities. This tendency to approach does not vary by the client’s ethnicity. Given the distaste that the sex workers possess for the Indians, being an attractive Indian client can significantly improve the probability (see Column (3) in Table 14) of being approached by sex workers (in comparison to the Chinese). The more attractive clients do not receive any preferential asking price, nor do they have a better chance of closing the deal. Thus, sex workers also have a moderate preference for looks, but the preference has limited financial impact.

Leveraging the advantage of rich self-collected data from the commercial sex market in Singapore, I successfully show that discrimination can prevail in a highly competitive market. The finding supports Diamond’s prediction that an infinitesimal amount of search cost of client can grant sellers the monopoly power which results in equilibrium price discrimination...

Statistical discrimination allows sex workers to maximize profit, while taste discrimination allows them to minimize the disutility from working with disliked clients by cutting the contact with them. The findings are consistent with the sex workers’ self-reported preferences and beliefs."

From a newer version (which appears to have a bit more data):

"They earn an average of somewhat more than S$3,200/month from sex, substantially more than they earn at home. About one-third of the sex workers report income from sources other than sex."

"Except for Indians and Bangladeshis who comprise the vast majority of the clients of the Indian sex workers, there is surprisingly little matching between the ethnicity of clients and sex workers (see table 2 ). In particular, Chinese clients are no more likely to frequent Chinese sex workers than are other clients"

"On a scale of 1 to 5 where 1 is dress very badly and 5 is dress very well, sex workers tend to think that their clients dress rather poorly (mean equals 2.4) and on a similar scale find their customers unattractive (mean equals 2.0)"

"sex workers make the first move almost three-quarters of the time. However, they are almost always the first mover with whites... while bargaining almost never fails with whites and rarely fails with Chinese potential clients, there are significant failure rates with both Bangladeshis (24 percent) and Indians (26 percent)."

"Sex workers view whites as willing to pay high prices. They therefore are more likely to approach them, ask for a higher price and are more likely to reach a deal, while the opposite is true of Bangladeshis. The results for Indians compared with Bangladeshis are consistent with our findings of animosity towards Indians. On the other hand, Indians are charged lower prices than are Chinese customers, suggesting that sex workers also believe they have a lower willingness to pay than Chinese or white customers.With respect to the claim by some sex workers that their dislike of Indian clients is objective rather than subjective, we see that contrary to claims that some of them make, Indians do not have high service duration, do not get an unusually large price reduction from the initial offer (suggesting that they do not bargain harder) and do not have an unusually high rate of demand for anal sex, our only proxy for roughness... it is skin tone rather than objective factors that drives many sex workers’ dislike of Indians"

"Chinese and white clients are most likely to have oral sex. This is somewhat less common among Indians and much less common among Bangladeshis. On the other hand, anal sex is most common with Whites and less common with other ethnicities."

"It is not clear whether it should be advantageous to engage in “sweet talk.” On the one hand, sex workers may prefer clients who tell them they are beautiful. On the other, such cheap talk may be perceived as an indication of higher willingness to pay. The mean of this categorical variable (from 1 to 5) is highest for whites and lowest for Bangladeshis."

Observation: no sex workers had a 1/5 rating for Beauty
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